Supreme Court upholds mandatory nature of pre‑institution mediation but allows abeyance for suits filed before Aug 20, 2022

A bench of Justices J.B. Pardiwala and R. Mahadevan heard the appeal by M/s Dhanbad Fuels Pvt. Ltd. challenging a Calcutta High Court order that kept a recovery suit by the Union of India in abeyance and directed mediation under Section 12A of the Commercial Courts Act, 2015 (as amended). The core issue concerned whether failure to comply with the mandatory pre‑institution mediation mandated by Section 12A required rejection of the plaint under Order VII Rule 11 CPC, and if so, with what temporal effect.

The Court summarised the legal position by reaffirming that Section 12A was mandatory in nature but that the consequence of rejection for non‑compliance operated prospectively. The Court said that where a suit did not “contemplate any urgent interim relief” a plaintiff must first exhaust the pre‑institution mediation remedy and, subject to specified exceptions, a breach of Section 12A attracted dismissal of the plaint under Order VII Rule 11. The Court, in its reasoning, observed: “We declare that Section 12-A of the Act is mandatory and hold that any suit instituted violating the mandate of Section 12-A must be visited with rejection of the plaint under Order 7 Rule 11. This power can be exercised even suo motu by the court as explained earlier in the judgment. We, however, make this declaration effective from 20-8-2022 so that stakeholders concerned become sufficiently informed.” The Court noted that the statutory mediation regime excluded the mediation period from limitation and equated a settlement reached under Section 12A with an arbitral award under Section 30(4) of the Arbitration and Conciliation Act, 1996. The appeal was dismissed and the High Court’s order keeping the suit in abeyance was upheld as consistent with the prospective application of Patil Automation.

Background The Union of India filed Money Suit No. 28 of 2019 in the Commercial Court, Alipore for recovery of Rs. 8,73,36,976. The defendant, M/s Dhanbad Fuels, raised a preliminary objection in its written statement that the suit was instituted without complying with pre‑institution mediation under Section 12A read with the Pre‑Institution Mediation and Settlement Rules, 2018 (PIMS Rules). The Commercial Court rejected an Order VII Rule 11(d) application seeking rejection of the plaint and, instead, appointed an advocate as mediator and directed mediation. Dhanbad Fuels filed a revision; the High Court set aside the naming of the mediator but directed the suit to be kept in abeyance for seven months or until the mediator’s report and directed the parties to approach the District Legal Services Authority, West Bengal in accordance with the SOP dated December 11, 2020. The appellant challenged that order before the Supreme Court.

The Supreme Court reviewed the legislative history: Section 12A was inserted by the 2018 amendment to make pre‑institution mediation compulsory (except where urgent interim relief was contemplated). The Court examined Patil Automation v. Rakheja Engineers (2022), which declared Section 12A mandatory and provided that rejection under Order VII Rule 11 would follow for non‑compliance but made that declaration prospectively effective from August 20, 2022. The Court held that suits instituted prior to that date did not automatically suffer rejection if they fell outside the limited exceptions identified in Patil Automation; trial courts could keep such suits in abeyance and refer parties to time‑bound mediation in accordance with Section 12A, the PIMS Rules and applicable SOPs. The Court emphasised that the test for “urgent interim relief” was whether the plaint, documents and facts showed a need for such relief from the plaintiff’s standpoint, and cautioned against parties using interim‑relief prayers as a disguise to bypass mediation. The Court directed mediation to be completed within the statutory three months (extendable by two months) where ordered.

Case Details: Case No.: Civil Appeal No. 6846 of 2025 (@ Special Leave Petition (C) No. 4980 of 2021) (2025 INSC 696) Case Title: M/s Dhanbad Fuels Private Limited v. Union of India & Anr. Appearances: For the Petitioner(s): Mr. Vikas Singh, Senior Counsel For the Respondent(s): Ms. Archana Pathak Dave, Additional Solicitor General of India